Monetary policy. It is necessary to lower the inflation rate to a level approximately equal to or slightly exceeding the index typical of developed countries – that is, about 5%. This implies a continuation of the policy of modified inflation targeting and a refusal to artificially keep the ruble’s exchange rate within an established currency corridor – when the monetary authorities level down its fluctuations. The operations on the monetary market will play a more prominent role in the formation of monetary policy, and crediting of the economy will be further developed by means of listing high-quality securities of domestic issuers.
A separate issue that deserves elaborate consideration is the prospect of making the ruble a regional reserve currency. The ruble has some advantages as a regional currency (these are, first of all, the impressive size of the Russian economy and the gravitation towards it of the neighboring countries), as well as some serious limitations (a resource-based economy implies an increased volatility of the national currency exchange rate). It would be feasible to prepare a special program (a system of measures) aimed at strengthening the ruble’s international position.
In this connection there arises one important task – to create in Russia an international financial center. The center’s goal will be to ensure appropriate institutional conditions for developing a national financial system and increasing the ruble’s competitive capacity as a regional reserve currency (this will also involve increasing the demand for the ruble as an instrument for carrying out financial transactions).
The monetary policy measures are closely associated with the issues pertaining to the organization of financial markets. Here the main directions can be described as follows: toughening the requirements to banks’ capital; the introduction of International Financial Reporting Standards (IFRSs); the development of a special program designed to promote competition in the banking sector (instead of demonopolization); macroprudential supervision RUSSIAN ECONOMY IN trends and outlooks of banks and system-forming non-banking institutions; development and implementation of special programs aimed at training the population in dealing with financial issues.
Development of the entrepreneurial climate and promotion of the activity of private entrepreneurs. With regard to that sphere, it is important to focus efforts on the least favorable components of the entrepreneurial climate – i.e., areas where an improved situation can yield the most rapid results.
Among the principal measures to be implemented here, we can point out the following ones:
- lowering the risks associated with doing business: а revision of the RF Criminal Code in order to abolish a number of its articles envisaging punishment for some economic and tax crimes (de-criminalization of the corresponding deeds), as well as a more precise definition and separation of the functions and powers of the law enforcement agencies supervising economic activities;
- improvement of legal protection of competition, expansion of companies’ rights to defend their interests;
- lowering the level of state interference and improving regulation efficiency (measures designed to alter the motivations and increase the control of the state apparatus);
- creating incentives for improving the conditions for doing business at the level of regional and local authorities;
- improving the efficiency of legal regulation of entrepreneurial activity, including the creation of a National Investment Council;
- a more precise definition of the functions of and limitations to the direct and indirect presence of the State in the economy as an economic agent (privatization);
- promoting the elaboration of various forms of public protection of business interests, the activity of business associations and the independent mass media;
- development of a strategy (‘a road map’) designed to lower those barriers that impose the most serious limitations on economic growth (market access barriers, access to networks, border crossing regimes, and liberalization of the construction market).
Liberalization and greater efficiency of the labor market becomes an especially important task in the situation of a decline in the economically active population.
It is necessary to revise the Labor Code in order to liberalize the procedures for the hiring and dismissal of workers and to abolish the practice of informal (political) regulation of employment within the framework of separate enterprises and in the regions.
Another direction involves a policy designed to stimulate labor mobility (domestic migration), concentration of labor in areas of economic growth, as well as a redistribution of the labor resources that have become redundant in the budget-funded sector. These measures will imply legalization and development of the residential leasing market, and also granting to Russian citizens an easier access to public welfare funds everywhere in Russia’s territory (medical insurance, etc.).
And finally, it is necessary to implement a number of measures designed to increase the attractiveness of immigration to Russia. They should include a switchover from the restrictionbased principles of migration regulation to differentiating ones; an orientation towards ‘sedentary’ migration; a policy aimed at attracting a highly qualified workforce (including the promotion of immigration and mobility in the fields of education and academic studies). The migration of qualified workforce is the most difficult to promote, but it would be much more Section Socio-political Context important to practically achieve that goal than to simply discuss the issues of illegal migration of unskilled labor.
Human capital is a key factor in the development of a sound post-industrial society. Investments in human capital have been the most relevant factor in those countries that over the last 50 years have achieved successful modernization leaps. This refers mainly to the development of sectors like education, public health care and the pension system.
According to the traditional (industrial) understanding, these sectors are branches of the social sphere. Although the social welfare aspect has retained its importance in contemporary developed economies, these branches now represent a network also of fiscal, investment and political components. In contrast to the practice that was widespread in the late 19th and most of the 20th century, education, medical services and pension provision are now available to the entire population (taxpayers and consumers of the corresponding benefits alike), and the demographic crisis has only further aggravated the already tense situation. As a result, the deductions to the development of these spheres can undermine the financial stability of any developed country. Besides, these deductions are, as a rule, long-term ones, and so they largely shape up a nation’s investment resources. And finally, an efficient functioning of these sectors actually determines the political and social stability of societies with a predominance of the urban population.
Human capital development implies providing solutions to both financial and structural problems. As far as financial targets are concerned, it is advisable to compare Russia’s relevant expenditure indices with those of countries with comparable or higher levels of economicо development – in particular, the OECD countries. Russia spends on education and public health care approximately 1.5–2 p.p. and 3–4 p.p. of GDP (respectively) less than the OECD.
However, problems hindering the development of the human capital sphere are not limited to insufficient financing. The other, more important, aspects are structural transformation and adequate response to the challenges of postindustrialо society. Below we are determining the five characteristic features (or principles of functioning) that must be taken into account when undertaking their structural modernization. These reflect the distinctive features of modern technologies – their dynamism (a rapid renewal cycle) and the increasing customization of technological solutions.
First, the services are provided on a continual basis. Education and health care are turning into a lifelong process – people train and get medical care as long as they live. The very idea of work is being transformed, thus also making more vague the idea of retirement.
Secondly, the services are becoming increasingly customized. More and more often people will be making a choice of their own educational ‘trajectories’ and health care mechanisms out of the available variety of educational and medical services. The retirement age is also increasingly becoming a matter of personal decision when people determine individually when they can and want to discontinue their professional activity. With regard to the pension system this will imply a very significant diversification of the forms of support provided to senior citizens.
Thirdly, the services are acquiring a global character. Educational establishments and hospitals are now competing not only with the neighboring or even national ones, but also with those situated elsewhere in the world. Of course, such a broad choice is by no means affordable to everybody, but as people become wealthier and the real cost of the relevant services RUSSIAN ECONOMY IN trends and outlooks and transport cheaper, more and more individuals will be participating in that global-scale competition.
Fourthly, the role of private spending on human capital development is becoming more prominent. The first three characteristic features imply expanding opportunities for individuals to buy the services that they need – consequently, the share of private demand is also going to expand at an accelerated rate, getting increasingly ahead of budget-funded demand.
Private payments and co-payments become not only a natural but an inevitable outcome of the technological modernization of the social sphere.
Fifthly, the role of new technologies is also on the rise, thus radically changing the character of the services being provided. As the information and communications technologies and transport are getting increasingly more sophisticated, the traditional forms of medical care and education are becoming a thing of the part. This can also be said of organizational innovations.
All the aforesaid features can provide a foundation not only for human capital modernization, but also for the economic and political modernization of the entire country, including its technological base.
Openness of the economy and promotion of competition. The year 2011 saw two major steps towards creating the preconditions for modernizing the Russian economy: the establishment of the Customs Union and the Common Economic Space on the one hand, and a breakthrough on Russia’s WTO accession on the other. The importance of these decisions is that they will increase the level of competition for Russian enterprises, which has so far been insufficient. Until recently it was believed that these two goals (post-Soviet integration and Russia’s accession to the WTO) cannot really be achieved simultaneously. However, by early 2012 all the contradictions previously existing in that sphere had been successfully removed.
One can really expect from the movement in these two directions something more that simply a more intense competition.
Post-Soviet integration may have two important consequences. First, it not only pushes further the market’s boundaries but also sets a precedent of reintegration that can be followed by other countries. Secondly, it helps to strengthen the ruble’s international positions and becomes de facto a significant step towards making it a regional reserve currency. Thirdly, in addition to competition between commodities it creates preconditions for a competition between institutions and jurisdictions. Although the partner countries’ institutions are probably not the most attractive ones, the very fact of competition will be conducive to progressive institutional shifts.
Russia’s accession to the WTO will help to diversify her exports. Of course, the State and businesses alike must undertake some coordinated efforts in that direction. Nevertheless, Russian companies have been given some additional chances to participate in international production chains.
Besides, the Russian Federation’s accession to the WTO will become the first step on the way towards Russia’s broader integration in the world economy and its institutions. The next important steps will be accession to the OECD and the start of active efforts towards creating a free trade zone with the European Union. Given that the EU’s share in Russia’s external trade is approaching the level of 60%, the strategic goal of the RF is to establish a EU-Russia relationship similar to the one that exists between the European Union and Norway.
All these events must be taken advantage of by Russia in order to seek some new niches in the international division of labor through diversifying her raw materials exports, promoting Section Socio-political Context exports unrelated to raw materials, and boosting the international cooperation of Russian companies. The strategic goal in promoting exports unrelated to raw materials (or hi-tech exports) will be to occupy a niche in South-South trade (the exchange of technology and hi-tech products between countries with medium and low revenue levels). It should be emphasized that all the successful modernization breakthroughs of the last 50 years have been based on orientation towards exports.
Spatial development. Spatial policy must rely on two principles: promotion of population inflow into economic growth points (or regions) as a compensation for the demographic crisis (an overall decline in population); and promotion of competition between regions and municipalities for the attraction of population and businesses.
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